Calcot advises farmers on market woes

Harry Cline | Jun 20, 2001

Calcot Ltd’s three annual meeting gatherings will likely be some of the most somber events in the cooperative’s 74-year history. Rather than hearing how much money they’ll receive in final settlements for their 2000 cotton crop from their cooperative, Calcot’s 1,500 members may hear what the repayment schedule will be for them to return portions of their seasonal pool advance payments issued last fall for this season’s crop.

Calcot’s directors and management will be meeting with growers this month starting Monday to give growers a mid-season assessment of the situation. And, it is a sad situation.

“When the advance payment decisions were made last Aug. 28, December and July futures contacts were in the 66 to 69 cent range,” said Mark Bagby, Calcot’s director of communications.

“Even during harvest-time when contract prices are historically low, December 2001 contracts were at 63 and July at 66 cents,” he said.

“We have seen a 30-cent drop in futures in less than a year,” said Bagby.

That drop did not go unnoticed by the financial community. The financial agency Finch downgraded Calcot’s commercial paper rating from F1 to F2 and the information was posted on the Internet.

“Naturally, this caused a great deal of anxiety and concern amount Calcot members…and rumors abound,” Calcot president Tom Smith wrote in a letter to the cooperative’s members where he provided “some facts about the financial viability of” Calcot and “to put to rest some of the rumors.”

Smith acknowledged that if its season pools were closed today, seasonal pool members would be asked to repay a portion of their advance.

Smith points out, however, that the marketing season is not over. It ends Aug. 30 and market recovery before then would erase the problem, he added.

If grower refunds become necessary, Smith pledged to work with Calcot’s members “to recover the over-advance in as painless a manner as possible.”

Smith said it is difficult to recall when times have been tougher for everyone in the business, from the grower to the mill.

Bagby pointed out that if an over-advance becomes reality, it affects only seasonal pool cotton. Call pool growers make their own marketing decision, and Pima producers will not be affected because prices are good for Extra Long Staple cotton.

“We can count our blessing for Pima and the climate we have to support such good production in the San Joaquin Valley,” said Bagby. “Pima is a niche market cotton, but it is a very large niche for the San Joaquin Valley. Not only are prices good for Pima, but if we did not have the Pima acreage we do there would likely be even more upland to burden the market.”

Pima producers in the California seasonal pool were advanced 86 cents per pound and in Arizona it was 85 cents. The Commodity Credit Corporation loan rate for Pima is 82 cents.

By comparison, the CCC loan rate for upland is capped at about 52 cents.

While supply and demand play a significant role in the current market malaise, Bagby said it is the strong value of the dollar that is strangling not only the domestic cotton producer, but domestic mills as well.

“The strong dollar is killing 3 million bales of domestic consumption and adding to U.S. stocks,” said Bagby. Domestic textile mills are closing because of the flood of yarn and finished goods.

“The American dollar is a very good currency earner for foreign nations. This may be good for the American consumer buying clothes at Wal-Mart, but it is killing American agriculture and the domestic manufacturers of cotton,” said Bagby.

One of California’s biggest competitors is Australia where Bagby said a 43-cent New York futures contract is equivalent to 86 cents per pound for an Australian cotton producer.

“We are locked into a loss at 43 cents while Australian cotton growers are seeing a good profit…all because of the strong dollar,” said Bagby.

Eighty percent of the 1.3 million bales of California and Arizona cotton sold last year was exported, according to Bagby. Calcot sales last season totaled $567 million.

Calcot’s management has been working with its lenders in getting through the season. Bagby said the downgraded financial rating would result in “miniscule” increases in interest rates charged to the cooperative.

While the news is bad at Calcot, the Bakersfield, Calif. based cooperative may be in better shape to weather the storm than other U.S. cooperatives and marketers since it is strongly positioned in export markets.

Most of the cotton producing states from Texas east rely more heavily on domestic cotton sales than exports. As domestic markets falter, they will be forced to turn to the export market where Calcot is a consummate marketer.

“Twenty years ago we were probably 50/50 export and domestic sales,” said Bagby. “We are very well equipped to deal in the export market today. Unfortunately, as long as we have such a strong dollar, it is extremely painful to be in that market.”